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Why position sizing matters

Position sizing defines how much you risk per trade. Two strategies with identical entries and exits can have:
  • completely different drawdowns
  • completely different equity curves
  • completely different survivability
Entry logic decides when you trade.
Position sizing decides whether you survive.

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What position sizing is

Position sizing answers one question:
How large is each position relative to my capital?
It controls:
  • exposure per trade
  • compounding behavior
  • sensitivity to losses
  • volatility of returns

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Common sizing approaches

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Fixed size

You trade the same nominal size every time. Example: 
Buy $1,000 worth of BTC on each trade.
Characteristics:
  • simple
  • no compounding
  • PnL grows linearly
Use cases:
  • early testing
  • concept validation

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Percent of equity (most common)

You trade a percentage of your current equity. Example: 
Use 5% of equity per trade.
Characteristics:
  • natural compounding
  • drawdowns scale with account size
  • most realistic for long-term testing
This is the default mental model most traders use.

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Risk-based sizing (advanced)

You size positions based on risk per trade, not position value. Example: 
Risk 1% of equity per trade based on stop loss distance.
This means:
  • wider stop → smaller position
  • tighter stop → larger position
Risk-based sizing requires clearly defined stop loss logic.

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Position sizing vs leverage

Leverage amplifies position size. Key points:
  • leverage increases both gains and losses
  • leverage does not change edge
  • leverage increases liquidation risk
Best practice:
  • define sizing first
  • apply leverage only if you understand margin mechanics

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How sizing interacts with TP/SL

Sizing and exits are tightly coupled. Example:
  • risking 10% of equity with a 2% SL
  • risking 2% of equity with a 10% SL
These are not equivalent in behavior.

Take profit & stop loss

Understand how exits and sizing interact.

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Why backtest returns can be misleading

High returns can come from:
  • oversized positions
  • aggressive compounding
  • hidden leverage assumptions
Always inspect:
  • drawdown
  • largest loss
  • exposure time

Metrics explained

Learn which metrics reveal sizing risk.

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Defaults and assumptions

If position sizing is:
  • explicitly defined → used exactly
  • omitted → a safe default is applied and shown
  • ambiguous → ATI asks for clarification

What Trinigence fills automatically

See how sizing assumptions are handled.

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Common mistakes

This often creates fragile strategies that fail under slippage or volatility.
Always normalize or align sizing before comparing performance.
High returns are meaningless if drawdowns are untradeable.

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Best practices

  • Start with conservative sizing
  • Risk a small % per trade (especially early)
  • Keep sizing consistent when comparing strategies
  • Let strategy edge, not leverage, drive performance

Risk management

Position sizing inside the full risk layer.

Percent vs logic exits

How exits influence sizing impact.

How to read results

Spot sizing-driven distortions.

Improving a strategy

Iterate risk safely.
Most strategies fail because of sizing, not signals.